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Warner Norcross + Judd LLP is a corporate law firm with over 230 attorneys serving clients in nine offices throughout Michigan. Among the largest law firms in Michigan, Warner works in virtually all areas of business law.

Michigan Law Firm - Warner Norcross + Judd LLP

The purchase of a yacht is a significant financial investment that requires navigation of a multitude of legal issues. Consultation regarding these issues, as well as tax, liability protection and venue location, should all be carefully coordinated with appropriate professionals to ensure compliance, mitigate risks and optimize outcomes.

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1. Boat or Yacht: What’s the Difference, and Why Does it Matter?

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Size: While there’s no strict definition of a “yacht,” it typically refers to sail or power vessels over 33 feet, mainly used for pleasure cruising, entertaining and long-distance travel. A “superyacht” is generally over 131 feet.

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Design: Boats tend to have simpler, functional designs, such as for fishing or water sports, while yachts are built for luxury, cruising and entertainment and are designed with a more upscale aesthetic to enhance the experience for passengers. In general, boats typically don’t have luxury features. Features like full kitchens, multiple bathrooms, laundry facilities or additions like swimming pools or helipads clearly indicate you own a yacht.

Cost: Yachts come with significantly higher costs — purchase, maintenance, mortgage, insurance and operations can add up to over 10% of the yacht’s purchase price annually.

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2. Vessel Documentation: Is it Necessary?

What is Vessel Documentation? Vessel documentation is a national form of registration. It is one of the oldest functions of government, dating back to the 11th Act of the First Congress (1790) and is managed by the U.S. Coast Guard under the Department of Homeland Security. It serves as proof of nationality, facilitates interstate commerce and provides access to certain trades like coastwise shipping.

When is Documentation Required?

Eligibility: To qualify for documentation, a vessel must be wholly owned by a U.S. citizen, qualifying corporation or trust (if each trustee and beneficiary is a U.S. citizen) and meet the size requirement of at least five net tons.

Certificate of Documentation (COD): A COD replaces a title for federally documented vessels. Registration with state authorities, like in Michigan, may still be required.

Vessel Marking: Documented vessels must display their Coast Guard-assigned number, name and hailing port according to strict guidelines.

The liability associated with an on-board personal injury, collision or environmental mishap can be significant. As with any asset that has high liability exposure, proper titling should be seriously considered. Individual ownership provides no asset protection. Corporate entities including LLCs, as well as trusts, should be considered as superior options, in addition to determining the most beneficial state of entity/trust formation.

Sales/Use Tax: A yacht purchase will be subject to either use tax or sales tax and may also be subject to a discretionary tax based on where the vessel resides, not where it is documented or registered. Each state has its own rate and, in some cases, cap on the tax. In Michigan, the sales tax rate is 6%, regardless of value. In Florida, however, the sales tax on a vessel cannot exceed $18,000. For those looking to potentially avoid sales tax, look at purchasing a vessel in a state without sales tax, purchasing and taking delivery of the vessel offshore, and establishing an offshore registration.

Fuel Tax Refund: Some states refund the “highway use tax” portion of fuel expenses for yachts.

Marine Survey: An inspection conducted by a marine surveyor to evaluate the condition, value and safety of a vessel and may be required for insurance and/financing.

Sea Trial: Test performance and seaworthiness.

Fluid Analysis: Identify potential engine issues and predict future maintenance needs.

Tax Check: Ensure there are no unpaid taxes or value-added tax obligations (VAT) liabilities as they are likely to become the buyer’s responsibility.

Abstract of Title: USCG Abstract of Title identifies any mortgages or claims of lien recorded with the Coast Guard. The purchaser of a vessel takes that vessel with all maritime liens and encumbrances whether known or unknown.

There are no vessel title insurance companies. Some liens are secret, and the Abstract of Title may not accurately represent all existing liens on the vessel. A purchaser should require a representation from the seller that the vessel is free and clear of all liens and encumbrances and that the seller will indemnify the buyer against all claims that may be brought against the purchaser for liens that attached prior to the sale.

An upcoming follow-up to this blog post will explore additional key considerations when purchasing a yacht, including liability concerns, risk mitigation strategies and essential factors for securing the right insurance coverage.

Acquiring a yacht represents a substantial financial commitment that requires careful consideration of various factors. Reach out to Karen Kayes or your Warner attorney to examine these matters thoroughly before making a purchase.

Legacy Matters

Private Client and Family Office

Senior Counsel

Karen L. Kayes

Buying a Yacht? Navigating the Legal Waters

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